The Compass Report: Fort Smith economy weak, stable

From a purely analytical standpoint, the Fort Smith region ended 2012 on a positive note.

Fourth quarter 2012 economic conditions were improved compared to the 2011 period, with gains in building activity and gains in specific sector employment balancing out the continued workforce shrinkage in the metro area. Also, the fourth quarter marked the end of four consecutive quarters of relative economic decline in the Fort Smith region.

The 2012 fourth quarter economy in the Fort Smith region showed slight gains compared to the third quarter of 2012. The fourth quarter 2012 grade of C was up from the C- recorded in the third quarter of 2012, and the fourth quarter of 2011.

The quarterly Compass Report is managed by The City Wire and presented by Fort Smith-based Benefit Bank. The report is the only independent analysis of economic conditions in the metro area.

Joe Edwards, president of Benefit Bank, said data in The Compass Report adds more importance to the recent announcement that Health Management Associates will add 500 jobs in a new regional service center to be located in Fort Smith.

“While this data is reflecting a stabilized jobs picture, we can all be really thankful for the latest new job announcements that will improve our future economic data,” Edwards said.

Year-on-year tax collections at the county level show that consumer spending as of November reflect the persistent unemployment problems. A recent report from the city of Fort Smith shows that the lag has continued into 2013. Fort Smith’s share of the county 1% sales tax in the February report is $1.187 million, down 4.37% compared to February 2012. The collection was down 6.76% compared to the revenue estimate.

While there is a lag in sales tax collection reporting by the state, the data suggest local retail activity is struggling to maintain the past year of relative stability following the sharp downturn experienced during 2009.

Ironically, the region’s troubled manufacturing sector was improved during fourth quarter. The sector added 300 jobs year-on-year (December 2012 compared to December 2011).

Growth in manufacturing employment is welcome news and the fourth quarter report is the second consecutive quarter of stability in the manufacturing sector. However, for the Fort Smith MSA to recover employment growth will have to be broad based and prolonged.

In December the total number of employed (non-farm employment) in the Fort Smith metro was an estimated 110,200, a slight improvement over the 109,900 in December 2011.

“While the local economy appears to have stabilized, a return to trend growth does not appear to be imminent,” noted economist Jeff Collins, who conducts the data collection and analysis for The Compass Report. “Hope for returned growth lies in the surprising ability of the manufacturing sector to add employment. If this trend continues, other sectors should benefit such as housing and retail.”

FORT SMITH REGION
OVERALL GRADES — Fort Smith regional economy (per quarter)
4Q 2012: C
3Q 2012: C-
2Q 2012: C-
1Q 2012: C-
4Q 2011: C-
3Q 2011: C
2Q 2011: C
1Q 2011: C-
4Q 2010: C-/D+
3Q 2010: C-
2Q 2010: C-
1Q 2010: C-
4Q 2009: D
3Q 2009: D
2Q 2009: D-
1Q 2009: D+

DATA AND REPORT DOCUMENTS
Link here for the raw data used to prepare The Compass Report for the Fort Smith area, Northwest Arkansas and central Arkansas.

Link here for more narrative about regional and national economic conditions.

SECTOR DATA
Non-farm employment — D+
Non-farm employment in the area has stabilized, with employment in the metro area at 110,200 in December compared to 109,900 in December 2011.

Non-farm employment is an often quoted measure of employment growth. Moreover, it is disaggregated into various employment sectors such as manufacturing, education and health services, etc. Change in employment drives population growth. The type of employment being created also determines in large part the change in income that drives growth in retail.

Goods-producing employment — B-
The decrease in manufacturing jobs as a percentage of the overall workforce helps diversify the economy. The percentage of manufacturing jobs in the overall workforce was 23.3% in December 2012, down from the 23.4% in December 2011.

This measure tells us about the risk to the local economy from being heavily weighted toward sectors that have been under economic pressure.

One of the fundamental principles of reducing risk is diversification. The Fort Smith economy has been based on manufacturing for decades, but this heavy reliance on one sector for employment and wealth creation has left the region vulnerable. For several years the manufacturing sector in the U.S. has shed employment as technology and international trade have redefined the production process.

As the economy of Fort Smith becomes more diversified the risk of a downturn in any one sector causing a catastrophic loss of employment diminishes.

Metro area Unemployment rate — C+
The area unemployment rate, an important gauge in the health of the metro labor market, posted declines in the fourth quarter. Unemployment in December was estimated at 8.1%, compared to 8.5% in December 2011.

Like non-farm employment, the local unemployment rate is also often quoted. Increases in the unemployment rate are correlated with declines in consumer confidence. The unemployment rate is an important gauge of the health of the local labor market.

Sales and Use tax collections — D+
Sales tax collections in the region and the city of Fort Smith began to show weakness in the fourth quarter of 2009. That weakness began to improve in the fourth quarter of 2010, was on a stable pace, but began to cool in the second half of 2012. The tax collections, which are good indicators of regional consumer confidence, were up in Crawford, Franklin, Logan and Sebastian counties to $3.11 million during November 2012 — compared to $3.28 million in November 2011. During the September-November period, overall collections were down 4.34% compared to the same period in 2011.

Sales and use tax collections provide an insight into both the total income and change in total income in an area as well as how consumers are responding to new information about the health of the national and local economy. Obviously, this measure is tied to retail activity.

Building Permit (housing) valuation — B+
The total value of permits issued in the fourth quarter (measured in a three-month rolling average) were improved more than 40% compared to the fourth quarter of 2011.

Residential building is an indicator of current and expected population growth. As new households are created they induce growth in retail, education services, health care services and other types of businesses that provide goods and services to households. Also, new construction provides employment and tax revenues.

Hospitality employment — B-
Hospitality employment, which began trending downward in the second quarter of 2012, leveled off during the fourth quarter. December 2012 saw 8,100 jobs in the regional hospitality sector, up 100 jobs from December 2011.

Growth in the hospitality and leisure sector as measured by growth in employment is included because of the emphasis on creating quality of place in local economic development initiatives. Unlike enplanements/deplanements, which may not be tied to activity in restaurants, hotels, and cultural venues, hospitality and leisure employment most certainly are influenced by growth of these activities. Another possible measure is hospitality-related tax collections.

Manufacturing employment — B
Manufacturing employment in the Fort Smith region continues to be a concern, but numbers did improve during the quarter. Sector employment in December 2012 was 19,000, up 300 jobs from December 2011 employment. Employment in the sector is down more than 33% from more than a decade ago.

For better or worse, Fort Smith remains a manufacturing town. That implies the near-term economy rises and falls on the performance of the sector. Growth in employment or even stable employment in the sector bodes well for the near-term outlook for the local economy.

Construction employment — C-
This sector, which includes mining/natural resources employment, saw employment decline slightly during the quarter (6,700 in December 2012, compared to 6,800 in September 2011).

The rationale for including construction employment is similar to that for building permits. The employment measure is influenced by changes in both the residential and commercial real estate markets.

Obviously, new space implies new residents and new businesses.